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1、Table of Contents1.0Introduction12.0Oligopoly1lEntry barriers1lNon-price competition13.0Explanation for Diagram in Oligopoly24.0Pure Competitive Market3lLower prices3lLow barriers to entry35.0Explanation for Diagram in Pure Competitive Market36.0Roles of Profit in Market Economy4lDemand for factor r
2、esources4lMarket Entry57.0The other two alternatives to profit maximization5lSatisficing behaviour5lSales revenue maximization58.0Influences on a Firm in the Short Run69.0References771.0 IntroductionMarco and Micro economic knowledge we had learned in this period is mainly to discuss about some majo
3、r market structures in the entire market now. And they are oligopoly, monopoly and pure competitive market and so on. In this case, the Virgin Mobile had entered in mobile phone market in the UK, which is an oligopoly market. In this market, Orange, Vodafone, BT Cellnet and One2One are the oligopoli
4、sts. 2.0 OligopolyWhen a market or industry is dominated by a small number of sellers, we usually believe an oligopoly appears. And there are two main features of oligopoly:l Entry barriers: Its a great block for the new company to be a long-run part of an oligopoly market. Usually, many smaller fir
5、ms operate on the periphery on such s market, which means these companies cannot reach the supernormal profits or affect much to market prices and output. Take Virgin Mobile (VM) as an example: Before VM engaged in the mobile phone market in the UK, there were some industrial giants conquered the ma
6、rket- Orange, Vodafone, BT Cellnet and One2One, which account for a large market share. Although VM is making profit, the money it earned is far less than any one of these oligopolist.l Non-price competition: As a few company be dominant to an industrial, pricing can be no longer an effective compet
7、itiveness for those oligopolistic firms. Compared with pricing, after-sales service, extension of new market and advertising seem to be more emphasized by them. In this case, the VM is better to promote the competitiveness in such ways - improving the after-sales quality, expanding into new markets
8、, building their own brand and so on.3.0 Explanation for Diagram in OligopolyIn the oligopolistic market, the oligopolists may react diversely to the different price variation trend of their rivals. If one oligopolist raises the price and other companies will not follow it to maintain the market sha
9、re, however, if the company reduce the price and other companies must follow, which is to keep more market shares. It can be seen in the kinked demand curve below. PriceOutputQ2qQQQQQARMRQ1MC3MC2MC1GFP2P1Before the price is higher than P1, the product demand is elastic that means the price raises an
10、d the total revenue will reduce. But when the price is lower than P1, the product demand is inelastic - the price reduces and the total revenue will also do. Thus, the company may able to reach a stable profit-maximizing equilibrium at the point G, so the companies in the oligopolistic market can no
11、t change the price optionally.4.0 Pure Competitive MarketIn the pure competitive market structure, the company can compete with each other perfectly. There are two common characteristics that are considered to be “competitive” are:l Lower prices: Generally, a perfectly competitive market exists when
12、 every participant is a price takerwhich means the suppliers will have not able to raise price for facing elastic demand curves, and no participant influences the price of the product it buys or sells. ( http:/en.wikipedia.org/wiki/Perfect_competition#Basic_structural_characteristics ) . So simply r
13、aising price will make a loss of demand and total revenue. The cross-price elasticity of demand can reflect the customers attitude towards some particular goods. The demand of substitute goods is holding pace with the price when it has any change. Conversely, the demand of complementary goods would
14、decrease when the price increase. In this condition, customers will always find the most proper goods for themselves.l Low barriers to entry: Compared with oligopoly, the new firms would be easier to enter in the pure competitive market. And the entry of new participants will probably provide compet
15、ition and ensure price is kept low in the long run. 5.0 Explanation for Diagram in Pure Competitive MarketIt is known to all that each individual firm is considered as a price taker. Customers may not prefer to buy a product with a higher price. Because of the characteristic (perfect knowledge) of p
16、ure competitive market, neither buyers nor sellers can gain an advantage and firm may sell their goods at the point where they have the maximized profit. From the short run view of a firm in a pure competitive market structure, the explanation of the diagram is as follow:Theprice in a pure competiti
17、ve market structure isdecidedbydemandandsupply, which canbeseenin panel on the right. When demand rises from D1 to D2, the equilibrium point goes from A to B andP2istheestablishedprice.Because of thepricewhichafirmusestaysatP2,marginalrevenueisequaltoP2atlastaveragerevenueisequaltoP2aswell.WhenMC=MR
18、,profitmaximizationisachieved,sothepointwhichfirmswillstopproducingshouldbeCwhichordinateisP2andabscissaisQ2.Accordingtothediagramabove,whenquantityisQ2,ATCisequaltoP1.SoP2subtractP1isaverageprofitandthenmultiplybyQ2canobtaintotalprofit. 6.0 Roles of Profit in Market Economyl Demand for factor resou
19、rcesScarce factor resources to flow where the expected rate of return or profit is highest. In the mobile phone market, when Richard Branson started to get profit in 2002, VM has 1,445,492 customers, which means stronger demands, more labour and capital are committed. With more scarce factor resourc
20、es, VM may able to earn more profit. However, in a recession, the output, incomes and investment for VM must all fall, which may cause the profit loss. Thus the company should take action (for example cutting costs) to preserve its market position.l Market EntryIf an individual company gets more pro
21、fit than others, it must be a signal to other producers within a market that profitable entry may possible. After three-year efforts, Richard Branson made VM profiting. When it comes, many other firms would be attracted to enter the industry. Thus, the competition would be increased and new products
22、, technologies would be also updated in a higher speed.7.0 The other two alternatives to profit maximizationl Satisficing behaviour Satisficing behaviour can be the substitute to profit maximization behaviour. This behavioural method lays stress on how decisions are taken within the firm. When a dec
23、ision is making, satisficing explains that individuals and groups should choose the first option that is good enough to address most needs rather all. Based on Herbert Simons work concerning behaviour -“people possess limited cognitive ability and can exercise only bounded rationality when making de
24、cision in complex, uncertain situations”, satisficing behaviour encourages individuals and groups to attain a more realistic goal.If VM set a goal that expending their customers to 2 million in a year, finally it reaches 2.5 million. Thus wise we can take the goal for a receivable.l Sales revenue ma
25、ximizationThe goal of sales revenue maximization is to maximize the sales other than profits. The managers decision price and strategy of products. In this pattern of management, business can grow or sustain market share, ensure survival, discourage competitors, achieve bonuses and build the prestig
26、e of the senior management.For the VM, when it initially entered the mobile phone market, it is a great approach that selling their products as many as possible with the lowest profit to enlarge their market share.8.0 Influences on a Firm in the Short Run C0TCTVCTFCQFrom the diagram above, which can
27、 be seen are total cost (TC) is the sum of fixed (TFC) and variable costs (TFC).In the beginning, when nothing is being produced ,the fixed costs will be equal to the total cost. The TC and TVC increase concurrently with the quantity, but they are paralleled and the distance between them is TFC whic
28、h is always invariable. And total cost is an upward trend. CAVCACQMCAFCThe diagram is about the short run cost curves. One time the fixed cost is excessively used, which will lead to the progressive decrease of marginal product, meanwhile the marginal product reduce will lead to the decrease of marg
29、inal revenue. Leading the reducing of the ATC when MCATC, on the opposite, it will lead to the ATCs increasing. Makingtheshort-runATCcurvelooklikeU-shaped,ontheotherside, thelawofdiminishingreturnswillleadtotheriseofmarginalcostofproductionasoutputincreases. WhenAVCincreasinghigherthanthefallinAFConetimetheoutputincreases,whichthemarginalcostisrisingwillleadtotheaveragetotalcostrising 9.0 References( http:/en.wikipedia.org/wiki/Perfect_competition#Basic_structural_characteristics ) .